Your Os boot issue is a corrupt registry (userinit.exe) doesn't/ can't complete loading the registry so which mode you boot in this would still be a problem hence you are still having the problem in Safe Mode. LKGC is only worth trying if the boot problem occured after a device driver installation which this is not.

Your CD being scratched up would most certainly related to the boot-install problems you are facing. Even if it did installed, chances are you might face post installation issues. If you have your XP serial, just get a copy of the same version of Windows (Pro or Home Edition) from someone else and then use your own serial to complete the activation.

PS. Trying a tool like CD Scratch Doctor might make the CD readable again.